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pleting the indorsement, the first transferee may deliver the instrument. What then are the rights of the person in possession of the instrument? They are the same as those which the first transferee had, i. e., to complete the indorsement by filling in his own or a third person's name as indorsee. The consequence is, that, as long as the payee's indorsement remains “blank,” the instrument is transferable by delivery and in effect payable to bearer. But as soon as it is completed, the instrument is transferable only by the indorsement of the indorsee under the special indorsement. The N. I. L. states the law in three sentences:

“The signature of the indorser, without additional words, is a sufficient indorsement” (27). “An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery” (28). “The holder may convert a blank indorsement into a special indorsement” (29).

$ 91. Blank indorsement followed by special indorsement. The holder of a bill or note, which has been indorsed in blank and delivered to him, may specially indorse it himself and transfer the instrument without completing the blank indorsement. In such a case, the last indorsement naming an indorsee, the instrument cannot be transferred without his indorsement. On the other hand, if the indorsee under a special indorsement transfers the

(27) Sec. 31. (28) Sec. 34. (29) Sec. 35.

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instrument by a blank indorsement, the paper becomes transferable by delivery and in effect payable to bearer. For example, if H. L. Smith, the payee of a note, transfers it by the blank indorsement “H. L. Smith," so long as the indorsement remains in this form no further indorsement is necessary to a transfer of the note. But if B. Jones, to whom Smith delivered the note, transfers it by the special indorsement "Pay to H. Richards (Sgd.) B. Jones,” the indorsement of Richards is necessary to a transfer. If Richards indorsed in blank “H. Richards,' the instrument would again be transferable by delivery. The N. I. L. (30) states this rule in these words: “An instrument is payable to bearer

when the only or last indorsement is an indorsement in blank."

$ 92. Special indorsement of instrument payable to bearer. An instrument payable to bearer on its face may be specially indorsed by the holder. Does such a note cease to be transferable by delivery and require the indorsement of the special indorsee for its transfer? Is it like the case of an instrument payable to order, which has been indorsed in blank and then specially indorsed? No. Its character as a bearer instrument remains, and it is still transferable by delivery without indorsement. Such an indorsement has the effect, however, of making the indorser liable as such in case the maker does not pay; but his liability as indorser exists only in favor of his special indorsee. For example, A, the holder of X's note, payable to bearer, transfers it to B by the special indorsement “Pay to B (Sgd.) A.” B delivers the note to C without in

(30) Sec. 9.

dorsing it. C, by the delivery to him, becomes the owner of the note, because it was payable to bearer, but he gets no rights against A as indorser. If B had indorsed the note to C, C might have looked for payment, not only to the maker X, but also to B as indorser. The N. I. L. provides:

Sec. 40. Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as make title through his indorsement.

$93. Restrictive indorsement. Under this title are grouped several kinds of indorsements of essentially different purposes and effects. The N. I. L. defines a restrictive indorsement as follows:

Sec. 36. An indorsement is restrictive which either: 1. Prohibits the further negotiation of the instrument;

or

2. Constitutes the indorsee the agent of the indorser; or

3. Vests the title in the indorsee in trust for or to the use of some other person.

$ 94. Indorsement prohibiting further negotiation. “Pay to A only” is an example of such an indorsement (31). It shows an intent to prevent a negotiation by A. It does not disclose the purpose, whim, or fancy which induced the restriction. It seems, however, that, in the absence of evidence to the contrary, the courts assume

(31) Power v. Finnie, 4 Call, 411 (Va.).

that the indorsee is simply a trustee or agent for the indorser, and confine his rights to such as are necessary for a collection of the instrument for the benefit of the indorser (32). But if in fact the transfer was to A for his own benefit, A, although he might not transfer the instrument, could bring an action upon it against all parties to it including his transferor, and keep the proceeds when collected (33). A special indorsement which does not contain words of negotiability, e. g., “Pay to A," is not restrictive, but is of the same effect as “Pay to A, or order.” If the instrument is payable to order on its face, it is negotiable by indorsement, and there is no reason why the indorsement should read also “to order” (34).

“An instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed” (35). “But the mere absence of words implying power to negotiate does not make an indorsement restrictive" (36).

$ 95. Indorsement constituting indorsee agent or trustee of indorser. This is the kind of restrictive indorsement which is by far the most frequently used. “Pay to Bank of X, for collection for my account. (Sgd.) A,” is an every day example of such an indorsement. Other examples are: “Pay to X for account of A. (Sgd.) A”;“Pay to X for my use. (Sgd.) A.” Such an indorsement vests the instrument in X as agent or trustee for A. But, more important still, it

(32) Neg. Inst. Law, sec. 37.
(33) See Hook v. Pratt, 78 N. Y. 371.
(34) Edie v. East India Co., 1 William Blackstone, 295.
(35) Neg. Inst. Law, sec. 47.
(86) Neg. Inst. Law, sec. 36.

notifies anyone dealing with the indorsee that X is not the beneficial owner, and of A's rights therein. Therefore, if X transfers the paper, A may reclaim it or its money proceeds from any transferee whatever into whose hands it may come. Thus, in the first example above, if the Bank of X, in order to facilitate the collection of the instrument, employed the Bank of Y for that purpose and indorsed the paper to it, the latter would hold the instrument for A's benefit just as the Bank of X had, and, though authorized to collect the money due, would hold it when collected for A and not for the Bank of X. In consequence, if the Bank of X was insolvent and was indebted to the Bank of Y, the latter could not apply the money collected to the payment of its claim against X, but would be compelled to pay it to A, the restrictive indorser (37). The rights which an indorser under this kind of a restrictive indorsement gets are those adapted to the purpose of the transfer, i. e., a collection of the instrument. In the words of the N. I. L. (38) they are:

(1) To receive payment of the instrument; (2) to bring any action thereon that the indorser could bring; (3) to transfer his rights as such indorsee.”'

The third of these powers shows the peculiarity of this restriction, which does not restrict the further negotiation of the instrument, but expressly authorizes a transfer for the purpose of carrying out the agency. The restrictive effect of the indorsement lies simply in the fact that by

(37) Blaine v, Bourne, 11 R. I. 119. (38) Sec. 37.

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